Buying a new car is exciting. But one of the toughest decisions to make is whether to get an older pre-owned vehicle or buy a shiny new car.
The decision you make has a lot to do with the level of peace of mind you want, the vehicle you want to buy and the budget you want to stick to.
Ernest North, co-founder of Naked, the fully digital insurance platform, compares the advantages and disadvantages of buying new and used cars.
The upsides to buying a new car
- Your car will ship with the latest technologies, which may include advanced safety technology, connectivity and comfort features like automatic emergency braking, lane-keeping assistance, and adaptive cruise control. This may help reduce your insurance premiums because these features can help prevent accidents and theft.
- A new vehicle will usually include a manufacturer’s warranty that covers repairs and replacement due to inherent defects. There will usually be a time or mileage cap. This will give you peace of mind during the early years of ownership.
- New cars often have a service and maintenance plan that will cover basic maintenance and service needs for a few years. This will generally include routine maintenance like replacing windscreen wipers, brake pads, and so on. The cost savings may amount to thousands a year.
- Your car is shiny and new with no wear and tear. There is less chance of encountering a fault that leaves you waiting for roadside assistance.
- You can configure the car to your needs, choosing the exterior colour, interior materials, advanced sound system, and performance components that meet your needs.
- Many dealers are running great deals to move units, especially when they must make room on the floor for the latest models. You can often get incentives like lower admin fees or an upgraded model for less.
- New cars are often designed for lower carbon emissions. Because they run more efficiently on less fuel, they may be better for the environment.
- That leather smell, oh that smell.
The downsides of buying new
- A new car starts losing value as soon as you get behind the wheel for the first time. A new car may lose about 20-30% of its value in the first year and around 50% or more over three years. That loss of value looks even worse if you’re buying a car on finance and paying interest on a depreciating asset.
- New vehicles will be much pricier than similar used cars. Insurance premiums may be higher, too. The extra lifespan of a new car might not justify the premium you’ll pay over getting a model that is a year or two older.
- Dealers often won’t haggle over prices because incentives from manufacturers are fixed and the market is competitive.
The upsides of buying a used car
- You can get more car for your budget. That means you can get a higher-end model or a car with more features than you could afford if buying a new one. If you’re lucky, you might even find a newer used car with remaining time on the warranty or service plan.
- With a used car, there’s a lot of information out there about the model's reliability, pain points and performance over time in professional and consumer reviews. Models that are new to the market might have unknown quirks and issues.
- A preowned vehicle retains its value better than a brand new car. It has gone through that first year or two of steep depreciation, and will thus depreciate more gently in the years to come.
- Insurance premiums may be a little lower on used cars. But bear in mind the difference might not be as much as you expect. Most insurance claims are for repairs and not replacement and the cost of parts, labour and repairs can still be pricey for used cars.
The downside of buying an older used car
- Older cars may need more frequent repairs and incur higher service costs due to wear and tear. You can mitigate this issue by purchasing a used car with lower mileage that was well looked after by its previous owners. This is often model and brand dependent.
- Your car might not be under warranty anymore, which means you’ll need to pay for major repairs if something goes wrong. A broken gearbox or the hydraulic system failing on your brakes can cost a small fortune to fix.
- You’ll need to fork out for the services when the service plan runs out — though in some instances you can pay to extend the plan.
- There’s uncertainty about the car’s past. The previous owner may have ditched it due to a hidden problem. Get the car inspected by the AA to check there are no major faults or evidence it was in a serious accident. Keep an eye out for pre-certified models. These cars have been through rigorous checks.
- You won’t be able to customise the car to your taste. You’ll need to choose from the colours, models and configurations on offer.
Weighing up the pros and cons
North says that purchasing a vehicle is a multifaceted decision, where you need to strike the right balance between your lifestyle needs, your budget, and your tastes.
“It is a major financial decision that could affect your financial health for years,” he adds. “It’s worth thinking about why you want to replace or buy a car, what you will use it for, how much money you have saved and how much you earn, and what your ideal car will look like. Then, you can draw up a list of the pros and cons of buying new versus used to make the right choice for your needs.”